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Is the Financial Crisis Really Behind Us?

Neil Barofsky

Neil Barofsky

If you’ve not heard of Manhattan prosecutor turned best-selling author, Neil Barofsky, odds are, you’ve not heard the whole story of what really happened with the bank bailouts and the eventual financial crisis that still complicates economic recovery. Bailout: How Washington Abandoned Main Street While Rescuing Wall Street offers a crisp, authentic and in-depth look into the corruption that’s held this nation in a stranglehold over the past several years. From the gross mishandling of the $700 billion TARP bailout to the greed shown by the banks that instead of being punished for, continue to be rewarded instead.

Barofsky retells the stories – and there are many – and perhaps most poignantly, the reader learns of how efforts to protect against fraud while holding the nation’s big banks accountable were met with outright hostility from U.S. Treasury officials. The reviews have been more than impressive and for anyone wishing to garner a more clear picture – one that doesn’t force sides, but rather, lays the facts bare in order for the reader to discern his own opinions – then Bailout is a must-read.

While we don’t typically review books, even if they are directly linked to our banks and personal income ties, this author recently completed reading the book – and of course, timing plays its own role as we look at some of the breaking news stories this week.

Accounting fraud has undergone a “quiet revolution”, according to Michael Levi, professor of criminology at Cardiff University. Not only that, but he says it’s also the biggest crimes as far as white collar goes. That could explain why it remains first and foremost in the minds of many, even as the recession is supposed to be gone.

TARP Funds Used Illegally

A former chairman of the Ashland, Mo. Bank Mainstreet Bank pleaded guilty to using at least $1 million in federal bailout funds to buy his own waterfront condo in Florida. The bailout money he received came at the deepest part of the financial crisis. November 2008 had everyone reeling and even as many believed things were bad and could get worse, most of us had no concept of just how bad it could really get. Some, however, really didn’t care how much worse it could become. Enter Darryl Layne Woods. He applied to the United States Treasury, under the guise of his bank, for federal bailout money totaling $1 million. Less than one week after receiving those funds, he made his way to Ft. Myers and used close to half of that money to purchase a rather impressive waterfront condominium.

At a time when many other Americans were losing their homes, he was siphoning off public funds to buy a luxury vacation condo in Florida,

said Tammy Dickinson, the United States attorney for the Western District of Missouri.

What many of these bank officials were unaware of, at least directly, was an investigative team that was put together at some point following the release of TARP funds. It took little time before accusations began running gamut of those using the funds for reasons other than what they were intended to cover.

And let’s not forget the banks that received billions of funds, only to later insist they didn’t even want the money, but that then-Treasury Secretary Timothy Geitner forced them to take it. His reasoning, according to various accounts from several different banks, was that the other banks would be more willing to come forward and take the bailout funds if a few of the “big 5” also requested money. Many have testified in various arenas that they grudgingly accepted.

In 2008, JPMorgan Chase received $25 billion in TARP bailout funds.

Others received similar amounts.

140 and Growing, Financial Crisis Continues

A special Inspector general overseeing the TARP program has been tracing those monies for an extended period of time, suggesting these investigations were simultaneous to the funds release. Not only that, but this case also provided a peek into how bad things really were. There have been 140 former banking officials who are now facing criminal charges.

Wondering how Barofsky learned of many of these criminal acts that went into his book? Turns out, prosecutors were also looking at the case from several angles and soon, it appeared Woods was looking for a way out weeks after receiving the money. He contacted Barofsky, who was overseeing part of the TARP program, with a three page request for information on what was allowed in terms of how the money was spent. He wrote he’d become concerned about the financial crisis (and this was less than one week after buying the condo).

Too Big to Fail Mentality

The housing bubble or bad investments or greed or a simple lack of ethics: these and hundreds more excuses are being used by those who played a role in what’s ultimately become the new reality. Hundreds of billions of dollars – most of which was incredibly and unwisely spent – have yet to make their way back to the taxpayer.

That might be because new reports suggest not enough’s changed and the banks are marching forward, blissfully care free of how it looks or what it might ultimately mean for the nation as a whole.
There are at least two, though, that are about to lose their blissful state of mind and both are former employees of JPMorgan Chase. The arrests, if they come, are due to accusations of hiding facts about the multi-billion dollar loss in a trading gaffe a couple of years ago. Insiders suggest those arrests could come as early this week and will include criminal fraud charges. Ah, but there’s one small problem: the former employees are in hiding.

The two employees, including a trading strategy manager and a low-level trader, could be expedited due to an in-place agreement with the UK, which includes a pass for American law enforcement who pluck them out of the UK and drag them to the U.S. Of course, they’d have to be found first: it’s rumored both are in hiding (Maybe they’re hiding out with Snowden since he’s managed to evade authorities for months? Eh…maybe not.)

The more important reality is that the government might be using this case as a “warning shot”, so to speak, to others who have played a role in the financial meltdown.

The Barofsky Factor

But here’s where Barofsky comes into play; remember, he was the special inspector general for the Troubled Asset Relief Program from 2008 until March 2011. He initially supported and defended the government’s bailout of the banks. Now, though, he says the program was a massive failure and that promises were made, but never kept, to the American people.

The government has declared its mission accomplished, calling the program remarkably effective ‘by any objective measure,’

he wrote in 2011. By the time he headed for the door, he had undergone a complete about-face, saying he “strongly disagree(s)” with the bailout. He said only the banks with the dirtiest hands benefitted then and right up until current day. Worse, he says, the homeowners that should have benefitted from the bailout are in worse shape today than they were then.

Remember, Congress worked under the belief that at least $700 billion of those collective funds would buy bad mortgages.

Those promises were broke and within weeks, it became clear that it was the banks that received the bailout funds. They insisted they’d be used to help homeowners and restore the mortgage sector as a whole. The results of those broken promises lie in the two stories mentioned above. You can be sure though that these are just two of hundreds.

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